May 13 (Bloomberg) -- Encana Corp., Canada’s largest
natural gas producer, returned to a first-quarter profit as
prices for the heating and power-plant fuel rose.

Net income of $116 million, or 16 cents a share, compared
with a loss of $431 million, or 59 cents, a year earlier, the
Calgary-based company said today in a statement. Excluding
foreign exchange and hedging losses, Encana exceeded the 53-cent
average of 17 analysts’ estimates compiled by Bloomberg by 17
cents.

Chief Executive Officer Doug Suttles will double Encana’s
oil output with last week’s $3.1 billion purchase of Texas
properties from Freeport-McMoRan Copper & Gold Inc. Suttles, who
took over almost a year ago, also is selling assets to rebalance
the company’s portfolio in favor of higher-priced oil and gas
liquids.

“We expect Encana to outperform the broader energy group
this morning,” as the company beat analysts’ estimates for
production, cash flow and profit, Greg Pardy, an analyst at RBC
Capital Markets in Toronto, wrote in a note today.

Encana benefited from higher prices for gas in the U.S.
Northeast, where supplies from its Deep Panuke project off Nova
Scotia are sold.

On Hold

While the company has said it may look to sell the project
at some point as it doesn’t fit with its strategy, “we believe
the strong natural gas fundamentals would put such a sale
process on hold,” Phil Skolnick, an analyst at Canaccord
Genuity Corp. in New York, wrote in an April 25 note. Skolnick
estimates the asset could be worth at least $2.3 billion.

Spot prices for gas in Boston and other parts of New
England, where supplies from the project off Canada’s Atlantic
Coast are delivered, rose 82 percent from a year earlier to
average $20.9122 per million British thermal units. Canadian
spot gas prices increased 75 percent to C$5.3013 a gigajoule,
according to data compiled by Bloomberg.

Encana is seeking to also raise as much as C$861.3 million
($790 million) from the initial public offering of a royalty
unit this month. The stock’s 28 percent gain since the Nov. 5
announcement of the IPO reflects a potential enterprise value
for the PrairieSky Royalty unit of $4.1 billion, Skolnick said.

Capital Spending

PrairieSky will hold about 5.2 million acres (2.1 million
hectares) of oil and gas properties in central and southern
Alberta and pay dividends. Royalty properties generate revenue
through levies paid by other producers drilling on the land.

Suttles said he would continue to “test the market” with
gas assets for sale. “We’ll continue to look to divest of some
of our positions,” he said on a conference call today.

Encana lowered its production target for 2014 to reflect
the completed sale of its Jonah field in Wyoming and raised its
cash flow estimate on expectations for higher fuel prices, Chief
Financial Officer Sherri Brillon said on the call. The company
won’t update its plans in the Eagle Ford shale in Texas until
the purchase from Freeport-McMoRan closes, Suttles said.

Encana, which has seven buy, 14 hold and four sell
recommendations from analysts, has risen 35 percent this year.